When the Energy and Tax Extenders Act of 2008 passed the House, Speaker Pelosi called it a tax cut for “millions of middle-income families." However, tucked into the bill is a $1.6 billion earmark for plaintiffs’ lawyers.
I’m not sure most Americans would consider class action lawyers a part of the struggling middle-class.
Not only is this $1.6 billion payout disturbing on its face, digging deeper into the issue reveals even more startling revelations.
First is the trial lawyer tax break itself, which The Wall Street Journal describes as “an incentive to file more class-action suits, because the lawyers could write off their up-front expenditures to pursue them.”
Currently, lawyers who work on contingency fees may have a choice when they sign up a client. They can ask for the expenses to be paid out of the award if they win the case – which the tax code considers a loan, allowing lawyers to deduct the expenses at the conclusion of the matter if they lose. Or, unless prohibited by a state's champerty law barring payment of another's litigation expenses, they can simply pay the costs and not receive any specific expenses out of their client’s potential award. The tax code considers this to be a business expense and allows the lawyers to expense the costs on their taxes in the year in which they are incurred.
In seeking this payout from their allies in Congress, plaintiffs’ lawyers who have this choice are trying to have it both ways. They want to get a special tax deduction for money they loan to their clients AND have those loans later reimbursed as part of their clients' awards.
The second startling aspect is the brazen way the trial lawyer tax cut was slipped into the bill.
During this session of Congress, not only has there been the targeted introduction of liability-expanding bills that would drum up more business for trial lawyers, we’ve actually seen monetary payoffs to the plaintiffs’ bar tucked into popular pieces of legislation – such as the recent mortgage rescue bill, which includes a $35 million payout to the trial bar. The Energy and Tax Extenders Act of 2008 is just the latest example of a taxpayer-funded payout straight into the pockets of the “struggling” trial bar.
Finally, this tax break for trial lawyers was passed by the House just as the illegal and unethical practices of some of America’s most famous plaintiffs’ lawyers are in the public spotlight.
Lisa A. Rickard serves as president of the U.S. Chamber Institute for Legal Reform (ILR), where she provides strategic leadership to ILR's comprehensive program aimed at changing the legal culture that has resulted in our nation's litigation explosion.